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Do changes in crude oil price affect economic growth in
China and India?
Deimante Norbontaite [email protected] +44(0)7427617878
University of Aberdeen, Kings College, Aberdeen, AB24 3FX
Deimante Norbontaite
5 – variable VAR model is constructed using both linear and non-linear
specifications, based on monthly times series from 1997:06 to 2011:12.
Variables considered for the model are: real GDP, money supply,
inflation, interest rates, and real oil price.
Granger – causality tests are undertaken to examine whether changes in
crude oil prices Granger cause GDP in China and India.
Impulse response functions and variance decomposition analyses are
carried out.
It is a well established fact that oil-importing developing countries
suffer even more through the adverse economic impacts of higher
oil prices than developed OECD countries:
Their economies are more energy intensive
They use energy less efficiently
They are more dependent on imported oil
Sharp increase in the world liquid fuels demand:
2010 87 MMbbl/d
2040 199 MMbbl/d
The potential for rise in liquid fuels demand is focused on the
emerging economies of China, India, and the Middle East.
Therefore, changes in crude oil prices must be of critical
importance to the economy of developing countries.
METHODOLOGY
MOTIVATION MAIN RESULTS
CONCLUSION
Linear model indicates that the world oil price and China’s GDP are significantly positively
correlated. However, oil price does not exhibit any significant effect on India’s GDP.
Neither China’s nor India’s economic growth has a power to influence the world oil price
neither in symmetric nor in asymmetric VAR models.
Asymmetric impact of oil price shocks on China and India’s economic growth – while real oil
price decreases significantly negatively affect China and India’s economic growth, real oil
price increases are found to be insignificant.